Friday, May 27

Samin expresses concern on impact of high freight rates imposed by shipping firms

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Dr Renco Yong

SIBU (Jan 27): Sarawak Association of Marine Industries (Samin) is concerned that the high freight rates imposed by shipping companies, especially in the container shipping trade, is causing adverse effects to shipyards in Sarawak and by extension, Malaysia’s marine industries.

Its president Dr Renco Yong, in a press release yesterday, pointed out that the sky-high rates which liner shipping companies servicing the trade lanes between China and Malaysia imposed, had led to increase in the price of raw materials, components and equipment imported by local shipyards.

“Up to 75 per cent of a ship is made of steel and many local shipyards buy from China owing to their competitive price and relatively good quality.

“With the transportation cost reaching heady levels, the cost of imported raw materials and items have also gone up dramatically as Chinese exporters try to cover their costs,” said Yong.

He noted that bottlenecks along supply chains, which were already forming during the movement control order and lockdown, became worse as more cargos tried to find their way from suppliers to end-users.

“The closure of some ports in China as a measure to curb the new surge of the (Covid-19) pandemic, the shortage of containers to be repositioned, the shortage of trucks, drivers, warehouse space and workers in the logistics chains which caused massive port congestion especially in the United States, and the re-routing of ships by ship owners to serve more profitable trade routes, combined to contribute to the sharp increase in freight rates in the container trade,” he pointed out.

“At the time of writing, a 40-foot container (FEU) costs a whooping US$17,500 (around RM73,000) in the Asia-Europe trade at the beginning of the year, compared to a mere US$4,000 in December 2020.

“The busy Trans-Pacific and Intra-Asia routes have also seen similar spectacular increase in freight rates,” he said.

Yong recalled that the sudden spike in container rates has been seen since the opening up of economies following the attainment of herd immunity against Covid-19 in many countries worldwide.

Supply chains and container shipping operators were ill-prepared for the surge in goods flowing through as demand for commodities and manufactured goods spiked, he added.

Commenting further, Yong feared that many shipyard operators in Sarawak who are already struggling in these lean times would suffer further blows if the crunch in container transportation and supply chains do not ease up soon.

“Local shipyards would stand to lose orders for new building projects as the higher costs of imported materials and items to build and repair ships would erode their competitiveness,” he pointed out.

“As it stands, their business has already been severely impacted by the economic fallout from the pandemic and the slump in the marine industry as a result of that. Another hit like what they are taking now with the high freight rates would cause further pain to them.”

Touching on the liberalisation of the Cabotage Policy for Sabah and Sarawak which has been in place since 2017, Yong lamented that it has not brought much impact in reducing the freight rates of shipping services linking ports in the two states with foreign ports and those in Peninsular Malaysia.

“As a matter of fact, the freight rates have been increasing in the past five years as we continue to depend on foreign vessels to provide shipping services to our ports,” he noted.

Additionally, many local owners of cargo ships have sold their vessels due to fierce competition from foreign shipping companies which have more vessels in their fleet, greater economies of scale and more connectivity with ports, he said.

This, he added, has further compounded the nation’s dependence on foreign shipping services and put local consumers, manufacturers, commodities producers, industries and businesses at the mercy of the high freight rates imposed by foreign shipping lines now.

“This erodes the competitiveness of our exports, increases the price we pay for goods and services and causes outflow of foreign exchange too,” Yong explained.

As a way forward, he said Samin hoped that all parties concerned would quickly clear the backlogs along supply chains and ease the bottlenecks to bring container freight rates back to reasonable levels.

“Governments, port operators, container shipping companies, container owners, trucks and warehouse operators and others along the maritime supply chain must work together to clear the backlogs at ports and along the supply chains as quickly as possible.

“This is important to ensure trade flows smoothly, economies can grow and players in the marine industry can be relieved from the adverse effects of the freight rates,” stressed Yong.